Actionable Insights From APT's Financial Services Practice
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The Branch of the Future

December 17th, 2010 | Posted by Will Weidman in Uncategorized - (Comments Off on The Branch of the Future)

Retail banks are investing in building the branch of the future.  An American Banker article describes how Citi’s new branches look more like an Apple store than a traditional retail bank.  There are a lot of elements to building this new type of branch – redesigning the branch layout for a more open floor plan, making the staff more versatile, extending hours, and adding capabilities to ATMs such as remote check imaging. 

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Top 10 Trends for 2011 in Retail Banking

December 15th, 2010 | Posted by Will Weidman in Uncategorized - (Comments Off on Top 10 Trends for 2011 in Retail Banking)

1. Get ready to compete with Wal-Mart

Wal-Mart has continued to make inroads toward becoming a full-fledged retail bank, and banks are worried about this to say the least.  A Forbes article details how Wal-Mart now has “Money Centers” with bill payment services, as well as a pre-paid debit card program.  Essentially Wal-Mart has “4,300 platforms to sell stuff,” and why not include products traditionally sold by retail banks?

Wal-Mart will offer two major benefits to potential banking clients – price and convenience.  Wal-Mart will without a doubt have some of the lowest fees in the industry, and with 4,300 locations, it will also be extremely convenient, particularly for those who already shop there regularly.  To compete with Wal-Mart on price, banks will need a competitive fee structure.  This does not necessarily mean having the lowest fees, and banks will need to determine the right fee level relative to Wal-Mart and other competitors to balance the goals of keeping customers and maintaining profitability.

Banks will also need to compete on convenience.  This includes having accessible branch locations, a high quality branch experience, and a strong online presence.  Getting fees right and improving convenience will not only help prepare banks to compete with Wal-Mart but will also help banks become more competitive in general.

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Survive the Net Interest Margin Squeeze

November 10th, 2010 | Posted by Jarred Brown in Uncategorized - (Comments Off on Survive the Net Interest Margin Squeeze)

A recent article in American Banker highlights how net interest margin will likely decrease going forward and has already started to decline for some banks.  It will be important to address this, but “banks are quickly running out of opportunities to reduce deposit costs and improve their own funding costs.”

With limited options on the deposit side, banks need to start findings ways to improve net interest margin on the loan side.  However, since loan demand has been weak, rock bottom rates have been necessary to remain competitive.

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The Real Future of Free Checking

November 1st, 2010 | Posted by Will Weidman in Uncategorized - (Comments Off on The Real Future of Free Checking)

The future of free checking is being debated on the wrong terms.  The question being asked now is whether we’ve seen the end of free checking.  Free checking will undoubtedly decline, but it will not, and should not, go away completely.  The real question is which accounts should still be eligible for free checking and how to maximize fee income in the newly regulated environment.

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Build Your Loan Portfolio Profitably and with Low Risk

September 30th, 2010 | Posted by Will Weidman in Uncategorized - (Comments Off on Build Your Loan Portfolio Profitably and with Low Risk)

A recent US Banker article describes how “total loans are shrinking because of soft demand.”  Many banks have turned the corner with loan losses and write downs, but now it is time to rebuild battered loan books.

Demand for loans is currently low, and banks need to be innovative to attract more loan business.  The challenge will be to find the right way to bring in more loans without increasing risk exposure beyond acceptable levels.

There are many important components to getting this right.  A key element that is sometimes overlooked is the quality of your team of loan officers.
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Lab Work Eased Wells Fargo Shift to New ATMs

September 15th, 2010 | Posted by Will Weidman in Uncategorized - (Comments Off on Lab Work Eased Wells Fargo Shift to New ATMs)

Wells Fargo was featured in American Banker discussing how Test & Learn has helped predict consumer behavior and improve the decision-making process for strategically important initiatives.

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Citibank Raises Account Fees

September 1st, 2010 | Posted by Jarred Brown in Uncategorized - (Comments Off on Citibank Raises Account Fees)

Citibank recently increased non-Citi ATM fees and announced a new checking and savings account structure with steep fees for accounts that don’t maintain a minimum balance.  With these sweeping customer-facing changes, they appear to be leading the way in trying to make up for lost fee revenue (read our earlier article detailing how banks need a new strategy to make up for lost fee revenue due to new regulation).

Other banks are going to need to catch up to stay competitive in the marketplace.  But what’s the best approach?  If you raise rates, how will your customers respond?  Will added revenue from the new fees offset potential customer attrition?  And what’s the optimal fee level?
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Innovate to Improve Checking Account Profitability

July 27th, 2010 | Posted by Will Weidman in Uncategorized - (Comments Off on Innovate to Improve Checking Account Profitability)

A recent article in US Banker cites an Accenture survey detailing how retail banks are extremely concerned right now about customer profitability and customer loyalty.  57% of banks have seen customer profitability drop by over 5% in the past year, and customer loyalty dropped for 59% of banks.

Another article in the Wall Street Journal cites a report by Celent highlighting profitability as a particular issue with checking accounts, which cost $250 to $300 a year to service and are unprofitable half of the time.  On top of this, banks are also worried about the death of free checking in the wake of overdraft regulation.

Banks need a strategy to make up for lost fee revenue due to new regulation and make checking accounts more profitable in general.  This challenge requires a structured approach to design and test new types of checking products, services, and offers to understand what works best and helps improve profitability. (more…)

How to Benefit Most from the Explosion in Relationship Managers

July 26th, 2010 | Posted by Jatin Atre in Uncategorized - (Comments Off on How to Benefit Most from the Explosion in Relationship Managers)

There has been an explosion in hiring relationship managers over the past few years.  An article in US Banker discusses how a big challenge can be actually finding enough relationship managers to hire given the high demand for them.

A central issue that is not as frequently discussed, though, is how to make the best use of these sought after employees. There is a limit to how many customers a relationship manager can effectively target, typically around 300 to 600 customers, and there is a lot of debate about how those customers should be chosen.  This debate is also worth a lot of money; we have found that getting book assignment right can increase the profitability of the program by tens of millions of dollars. (more…)

Like it or not, Here Comes Wal-Mart

July 23rd, 2010 | Posted by Jarred Brown in Uncategorized - (Comments Off on Like it or not, Here Comes Wal-Mart)

Wal-Mart is continuing to expand into financial services, and banks are getting increasingly worried.  A recent CNN article highlights how Wal-Mart is likely to do what it is best at – lowering costs.  In an environment where fee revenue is already under pressure, “Wal-Mart estimates it can take in its still-generous fees while reducing what the average check-cashing customer pays by 25% to 50%.”

Wal-Mart will undoubtedly continue the downward pressure on fees.  However, while the retailing giant is another competitor to worry about, the fee revenue issue is not specific to Wal-Mart and needs to be addressed more generally.  Wal-Mart is not the only financial service provider with lower fees.  ING, for example, doesn’t charge overdraft fees at all and instead only charges interest while accounts are overdrawn.

While many banks are focused on the best strategy to address new regulation, we have seen that very few have thought more broadly about how to preserve and maximize fee revenue.  The bank that wins against Wal-Mart will also beat the competition in general.  This will require the development of a more tailored approach to determine the right fee amount and fee policy for each customer. (more…)